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Akamai will release its Q2 2014 earnings on July 30th. We expect the results to benefit from FIFA World Cup 2014 games, which stretched from mid June to mid July. Our estimates reveal that Akamai could have added somewhere around $40-$50 million in incremental revenues from the World Cup in the second quarter alone. Additionally, the continued growth in value-added services and recent investments in the network will ease off the margin pressure resulting from decline in CDN pricing. Let’s take a deeper look at what to expect from Akamai’s upcoming earnings.

Pure-play CDN is getting commoditized due to growing competition from other players such as Level 3, Limelight Networks, Edgecast, and Amazon. This has prompted CDN pricing to come down in recent years. Akamai has managed to mitigate the impact of this trend by focusing on improving performance and offering security and other value-added solutions through new service launches and acquisitions. These services, which have higher margins compared to regular content delivery, constitute close to 60% of Akamai's revenues now. In addition to this, Akamai's margins have also benefited from recent network investments, which have lowered bandwidth and co-location costs, as well as increased efficiency in content delivery. We expect this recovery to continue in the second quarter of 2014.

World Cup Streaming Will Help Akamai’s Second Quarter Media Revenues

According to FIFA, approximately 3.2 billion people watched at least some part of the soccer world cup in 2010. Additionally, the average in-home viewership for each of the 64 matches stood at a little over 188 million. As far as FIFA World Cup 2014 is concerned, 11 matches had concluded by the end of Sunday, June 15. We gather from Akamai’s website that the company’s network saw an average streaming throughput of roughly 2.49 TBPS for these matches. Going forward, as more important matches came up with teams entering knock out rounds, online traffic likely grew more heavily, thus lifting this average. For the purpose of calculation, we assume that the average Akamai throughput for the overall World Cup amounted to 3 TBPS.

Given that there are 64 matches, with each match lasting roughly two hours (including the half time break and some commentary time in the beginning and the end of the match), we estimate that Akamai enabled the delivery of total media data of roughly 1.42 billion Giga Bytes. Even at a rate of 3 cents per GB, World Cup streaming likely added incremental revenues of more than $40 million for the second quarter. That may be small in comparison to Akamai’s overall revenues, but it was incremental and thus additive to margins in the short term. It must be noted that the actual incremental revenues resulting from the event was likely to be higher as users tend to watch replays, sports analysis and highlights related to matches. Additionally, the company also benefited from providing value added services related to the World Cup streaming, bringing in more revenues than commoditized CDN service. Overall revenue gain could be of the order of $90 million, half of which will reflect in second quarter’s results as the World Cup stretched from mid June to mid July.